If the expected rate of inflation in Germany is greater than that in Australia,German nominal interest rates will be greater than Australian nominal interest rates.

Question

Quizplus · Accepted Answer

In countries where inflation is expected to be high,interest rates also will be high,because investors want compensation for the decline in the value of their money.It follows from the Fisher effect that if the real interest rate is the same worldwide,any difference in interest rates between countries reflects differing expectations about inflation rates.

If the Expected Rate of Inflation in Germany Is Greater